Where entrepreneurship and finance meet : startup valuation and acquisition in the venture capital and corporate context

Abstract

The purpose of this dissertation is to examine the underlying determinants of startup valuation and startup acquisition in the venture capital (VC) context, with particular focus on the role of corporate venture capital (CVC). The first study—Chapter 2—titled “The determinants of startup valuation in the venture capital context: A systematic review and avenues for future research” is a systematic review of the literature on empirically examined determinants of startup valuations in the VC context. It compiles and organizes the determinants examined in 58 selected papers in an integrative framework. This framework shows that startup valuations in the VC context are shaped by factors related to three levels, namely startup, venture capitalists, and the external environment. Moreover, the review process makes it possible for the study to highlight academic voids and to outline promising paths for future research. In the second study—Chapter 3—“Exploring the differences in early-stage startup valuation across countries: An institutional perspective”, fuzzy-set qualitative comparative analysis (fsQCA) across a sample of 13 countries is applied to explore the driving factors of the institutional setting in combination with a country’s innovativeness determining high and low early-stage startup valuations across countries. Overall, the study identifies five configurations; two configurations explain the outcome of high early-stage startup valuations, and three configurations explain the outcome of low early-stage startup valuations across countries. By applying fsQCA, the study also highlights the benefits of a configurational approach to exploring the institutional determinants in combination with a country’s innovativeness underlying early-stage startup valuations in the VC context. The third study—Chapter 4—titled “A world of difference? The impact of corporate venture capitalists’ investment motivation on startup valuation” combines explorative research (computer-aided text analysis and cluster analysis) and theory-testing (hierarchical linear modeling) methods to disentangle the different types of the motivation underpinning corporate venture capitalists’ (CVCs) investments, and their impact on startup valuations. In its explorative part, the study identifies four types of CVCs’ investment motivation: financial, strategic, unfocused, and analytic. In its theory-testing part, the results show that CVCs with a strategic investment motivation assign significantly lower startup valuations, while CVCs with an unfocused investment motivation assign significantly higher valuations than their peers having an analytic motivation. Hence, the study’s findings stress the heterogeneity of CVCs, thereby moving beyond the dominant black and white approach of the current academic discourse that labels CVCs as either strategic or financial. The fourth study—Chapter 5—titled “From investment to acquisition: The impact of exploration and exploitation on CVC acquisition” forms a bridge to the previous study by investigating the interplay of CVC investments and startup acquisitions drawing on the framework of exploration and exploitation. The study exploits a unique and diligently constructed dataset to shed light on the phenomenon of CVC acquisitions (i.e., a corporate mother acquiring a startup funded through its CVC unit) using computer-aided text analysis and logistic regression. The findings show that corporate mothers with a greater degree of explorative (exploitative) orientation are more (less) likely to engage in a CVC acquisition; and that this effect is negatively (positively) moderated by the extent of product market relatedness between startup and the potential acquirer. Taken as a whole, this dissertation is interested in the hitherto empirically studied determinants influencing startup valuations in the VC context; how the institutional setting affects early-stage startup valuations; the differing investment motivations of CVCs and their impact on the startup valuations assigned; and the underlying drivers of CVC acquisitions. To address these aspects, the dissertation draws on multiple streams of academic literature and various analytical methods. In doing so, this dissertation provides new and important insights that enhance the understanding of the entrepreneurial process by painting a more complete picture of the factors affecting the valuation and acquisition of startups in the VC context. Notwithstanding the dissertation’s contributions, it also discusses its limitations in outlining promising paths for future research. In sum, this dissertation can clearly serve as a door opener for future research seeking to further illuminate these under-researched, but crucial events in the entrepreneurial process.

Diese Dissertation widmet sich in vier Studien der Beantwortung von Forschungsfragen rund um den Komplex der Bewertung und Akquisition von Startups im Venture Capital- und Unternehmenskontext.